Europe

Global Recession Is Over, Says OECD

September 14, 2009

The global downturn was effectively declared over yesterday, with the Organisation for Economic Co-operation and Development (OECD) revealing that "clear signs of recovery are now visible" in all seven of the leading Western economies, as well as in each of the key "Bric" nations.

The OECD's composite leading indicators suggest that activity is now improving in all of the world's most significant 11 economies—the leading seven, consisting of the US, UK, Germany, Italy, France, Canada and Japan, and the Bric nations of Brazil, Russia, India and China—and in almost every case at a faster pace than previously.

Each of the 11 economies saw an improvement in July, the OECD said, with only France improving at a slower rate than in June. The July figures are the most encouraging since the indices began ticking downwards during the first quarter of last year.

The OECD's leading indicators are considered a key economic yardstick because they measure the sectors of countries' economies that tend to react first to upswings and downturns. As such they provide early evidence of the way in which the overall economy is progressing.

In the UK, the OECD said the leading indicators were pointing to a particularly strong recovery, with the measure showing a 1.3 per cent improvement during July, the British economy's best performance so far this year on the organisation's measure.

"The leading indicator first rose in February and the rate of improvement has picked up steadily since then," said Howard Archer, the chief UK and European economist at IHS Global Insight (IHS). "This reinforces belief that the UK is set to return to growth in the third quarter."

The OECD data comes at the end of a week in which a series of economists havesignalled the end of Britain's recession, with a string of indicators including retail sales, house prices and manufacturing output suggesting a marked improvement in economic performance. The National Institute for Economic and Social Research said it believed the economy began growing again in May and that growth was 0.3 per cent over the three months to the end of August.

While some analysts have been cautious—notably former Monetary Policy Committee member David Blanchflower, who launched a savage attack on the Bank of England this week—the growing optimism was also helped by credit ratings agency Moody's. It said it would maintain the UK's AAA rating, despite fears earlier this year that the parlous state of public finances might damage lenders' views of Britain's creditworthiness.

The stock market has also reacted positively to the growing economic feelgood factor, reaching levels not seen since the collapse of Lehman Brothers a year ago and the subsequent financial crisis sent share prices around the world into a tailspin.

Yesterday, the FTSE 100 Index broke back through the psychologically significant level of 5,000, with share prices up 3 per cent this week alone. The index has risen in three of the past four weeks and is now up by close to 50 per cent since its low-point in March.

While the improving economic outlook has prompted calls for the Government to begin reining back the fiscal stimulus programme it launched to prevent recession becoming depression, there has been little sign yet of any imminent rise in inflation.

Official statistics published yesterday showed that factory gate prices rose by just 0.2 per cent during the month of August, with the annual rate of inflation for manufacturers' goods remaining negative, at -0.4 per cent.

There is some concern, however, about a sharp increase in input prices, with the cost of raw materials up by 2.2 per cent in August according to the Office for National Statistics. The rise reflects markedly higher oil prices, which could pose a threat to the sustainability of the economic recovery.